Third of savers wavering about workplace pension

Third of savers wavering about workplace pension

Some 34 per cent of people haven’t decided yet if they will continue to save into a workplace pension after contributions to auto-enrolment increase in 2018/19, according to research from Aviva.

The survey, which polled more than 2,000 private sector employees, also found that women are more undecided than men – 40 per cent and 29 per cent, respectively.

Overall, only 4 per cent of respondents said that it will leave the scheme they are in at the moment after 2019, while 12 per cent will consider that option.

Article continues after advert

Currently the auto-enrolment minimum total contribution is 2 per cent - 1 per cent each from the employee and employer.

From April 2018, the minimum total contribution will increase to 5 per cent, with the employee paying 3 per cent.

One year later, it will increase again to 8 per cent, with the worker paying 5 per cent.

A total of £17bn a year will be going into workplace pensions by 2019 to 2020 because of auto-enrolment.

According to the provider, in the next few months it will be crucial to keep the undecided informed about the changes and the benefits of continuing to save into a pension.

According to Colin Williams, managing director of workplace benefits at Aviva, the fact that only a small proportion of people appear to be intent on opting out is an indication of the “impact auto-enrolment has had on changing the savings culture and helping people onto the path of saving for retirement”.

He said: ““But this doesn’t mean we should be complacent. Next April contributions are only rising to a total of 5 per cent of salary.

“This is still well short of the level we believe is necessary to deliver a reasonable retirement for most people. Aviva has already called for minimum contributions to rise to 12.5 per cent by 2028.”

Mr Williams argued that by saying opted in, “savers will benefit from their employer putting more into their pension and the government putting in more as well through tax relief”.

“The result will be that they are giving their future self a pay rise,” he concluded.

According to Nathan Long, senior pensions analyst at Hargreaves Lansdown, “trying to forecast what might happen when contributions rise is next to impossible”.

He said: “There will never be a perfect moment to insist people pay more into their pension, but the government will have hoped to avoid the current period of low wage growth.

“Original estimations were hugely pessimistic with far more people expected to opt out of saving for retirement. Managing the increase in contributions is the biggest challenge to pensions in 2018, but inertia is likely to mean opt-out rates remain relatively low.”

The government is currently conducting an auto-enrolment review, launched last year by the Department for Work & Pensions (DWP), which is expected to publish a report this month.